On Obamacare, the President Ignores Unpleasant Realities

(Yuri Gripas/Reuters) He tries to makes his case in The Journal of the American Medical Association.

This week, President Obama published an article in The Journal of the American Medical Association that is likely to be his last and most comprehensive defense of the Affordable Care Act — a.k.a. Obamacare — while in office. Not surprisingly, it’s a rather one-sided accounting.

The president says the law has reduced the number of uninsured Americans, slowed the pace of rising health-care costs, and improved access to high-quality health care for millions of Americans. He also says more progress would have been made if not for the “hyperpartisanship” infecting Washington. He betrays no hint of self-awareness that perhaps his own conduct and statements, and the manner in which the law was pushed through Congress and enacted, might have been causes of the deep divisions in health-care policy that have persisted throughout his presidency.

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The fundamental battle in health care is over the role of government. The president bristles when opponents of the ACA say the law will lead, eventually, to a full government takeover of health care. But is there any real doubt about that now? The ACA transferred massive power and authority from individuals, employers, and states to the federal government. The federal bureaucracy now calls all of the shots in the health-insurance sector and is using its powers under the ACA to push hospitals and doctors to conform to the government’s preferred methods of caring for patients. Hardly a day passes without an announcement from the Department of Health and Human Services of a new regulation, demonstration program, or payment adjustment affecting millions of patients and large segments of the health industry. At this point, private initiative is not the driving force in health care; the federal government is at the center of all important decision-making.

It is undeniable that the ACA has increased enrollment in health insurance. The Congressional Budget Office (CBO) estimates that the ACA reduced the number of uninsured Americans by about 17 million in 2015. Overall, about 90 percent of people residing in the U.S. now have health insurance, up from an average of about 85 percent over the past two decades.

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But much of the increase in insurance enrollment under the ACA is due to an expansion of public coverage, not private insurance. The CBO estimates that, in 2016, more than half of the people gaining insurance will be enrolled in Medicaid, a program that scores of studies have shown provides access to care that is far more restricted than that provided by private insurance. Yes, there are millions of new enrollees in Medicaid. But the ACA did nothing to improve the quality of the care Medicaid provides to low-income patients.

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Also, the president all but ignores the increasing instability of the ACA’s exchanges. McKinsey reported that in 2014 the cumulative losses for the health-insurance industry in the individual insurance market, which is now dominated by the ACA exchanges, was $2.7 billion. Since then, things have only gotten worse. Scores of insurers have reported significant losses since the program launched, and many have pulled out of various markets. So far, 16 of the 23 publicly subsidized co-op plans — precursors to a “public option” — have gone bust from large financial losses. And the insurers who are planning to stay in the exchanges in 2017 are asking for very substantial premium increases, often well above 20 percent, in order to stem their losses.

Those buying insurance plans on the exchanges have been higher users of health services than the insurers priced for.

The basic problem is that those buying insurance plans on the exchanges have been higher users of health services than the insurers priced for. Why did insurers underprice their products? The official answer is that they expected more young and healthy customers to enroll. But there was never really any reason to expect the risk pool in the exchanges to resemble what large employers experience. In fact, given the ACA’s requirement that insurers charge all customers the same premium (with restricted adjustments for age), it was to be expected that enrollees in exchange plans would have more health problems and also use services at a high rate. What really happened is that insurers succumbed to the explicit and implicit pressure coming from the Obama administration to lowball the premiums they were charging to make the program look more affordable than it really was in its early years.

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That kind of wishful thinking can go on for only so long, and now it is ending.

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On cost growth, the president engages in the usual post hoc fallacy. He says that recently costs have been growing less rapidly than in the past and that therefore the cause must be the enactment of the ACA in 2010 and, specifically, efforts to promote “delivery system reforms” through Medicare. This is nonsense. The savings from accountable care organizations, bundled payments, and other similar changes enacted in the ACA have been estimated by the CBO and others to be very small relative to the size of the Medicare program and national health spending. Most of the slowdown of recent years was due to the deep recession of 2007–09 and the slow recovery that followed. It is also noteworthy that there has been a slowdown in health spending throughout the developed world in recent years. Administration officials like to attribute every positive trend they can find to the ACA, but even they might find it hard to come up with a plausible explanation for why Obamacare led to a slowdown in health expenditures in Europe.

The president concludes his assessment by suggesting next steps for his successor. It just so happens that his suggestions match up perfectly with the proposals recently issued by Hillary Clinton’s campaign. Most notable is the proposal to inject a “public option” into the ACA exchanges. The president and Clinton want consumers to be able to select enrollment in an insurance plan run by the federal government, presumably using payment rates tied to Medicare. This is the logical next step for those who would like to see all Americans enrolled in a government-run insurance plan. Plans issued by private insurers must negotiate payments with a network of providers to ensure that their enrollees have access to needed care. Not so with public insurance. Medicare doesn’t negotiate payment rates; the program issues a regulation setting payments, and providers have no choice: They either accept what Medicare pays or they leave the program. The same would be true of a public option in the exchanges. Artificially low payment rates would allow the government to set low premiums for the coverage, but enrollees would have no assurance of ready access to care.

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It is telling that President Obama is once again calling for the public option as he ends his time in office. He has spent the past several years denouncing opponents of the ACA for using the overheated rhetoric of a “government takeover.” But a public option would bring millions of Americans into a Medicare-type insurance plan and make it very difficult for private insurers to compete for customers. The president knows this, which is why he supports the idea. He believes in government-run health care and has been pushing to bring it about throughout his time in office, even if he won’t admit it.

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